Over the years, we have spent thousands of hours talking with our traders and answering their emails. We have a huge collection of really great information that only benefited the specific traders who we were interacting with. So, we decided to start sharing all of these gems of knowledge with everyone.

Thursday, January 28, 2016

The markets look to be in consolidation mode this week, as the bulls and the bears exchange blows. The markets also appear to be building a pretty decent base here, as volume and range continue to stay steady. We are starting to see the effects of earnings results on these markets intra-day, but haven't seen any real directional impact on overall sentiment.

Continue to look for market closes above highs or below lows – without these, we are probably destined to be range-bound for a while.

If the markets continue to base, we will need to identify a tighter range. This could be a great help with trade confirmation and identifying breakout or breakdown opportunities. Make sure to always follow your plan, and double check for earnings dates over the next week or two.

Tuesday, January 26, 2016

The markets look to be struggling here after putting in a bottom last week. The markets finally posted a close above a previous day's high, made on Friday of last week. This gives us confirmation of a support level and/or at least a temporary stop to the downward slide. How long it will last is anyone's guess; however, there is still much activity by both the bulls and bears.

The last two days have been volatile, but with one move erasing the next, no real gain or loss is to be seen. This doesn't mean we should stay completely sideways. With earnings season in full swing, we should look for some directional bias. There are trades to be made out there, although shorter term is still the outlook for now. Be mindful of earnings announcements and stay balanced.

Thursday, January 21, 2016

We are still waiting to see a clear signal of a market bottom, as another bullish move fails to hold its gains. Yesterday did leave us with a promising hammer candle, which was also associated with big volume. However, today's bullish move seemed to fizzle out towards the close. The bulls have yet to show a strong answer to this bearish move, as we still have not seen a close above a previous high.

We are seeing a large amount of volume at these levels. We might not see the "clean" capitulation bottom we are used to. Earnings season is right around the corner, which should add to the current volatility. Nothing much has changed over the last couple weeks, so we will continue to monitor the markets.

Keep in mind that any range bounding stocks in the short-term (sideways and diagonal) could have an advantage here if you can handle the market range. Make sure to start checking earnings dates with any new setups.

Tuesday, January 19, 2016

Support levels are holding; however, the markets can’t seem to sustain any type of bullish rally. The markets opened higher on the session, but slowly and steadily gave back the majority of their gains.

This bearish move has pushed price levels well below averages, making it difficult to enter new bearish positions here. We have been waiting for a multi-day bounce in these markets, along with the rest of the world, but the bulls have yet to find any legs.

Stay patient! As discussed in Sunday’s trading room, we aren’t seeing very many high probability setups. Keep an eye on the current support levels and let’s see if the bulls can muster a rally here.

Tuesday, January 12, 2016

The markets looked to be searching for a temporary bottom this week, as today gave us a decent move higher into the close. The last two days have given us signs of a bottom...or at least an area of bearish hesitation. Since the markets broke support levels last week, we haven’t seen anything but bearish movement until today.

We have seen a decent correction in the markets since the beginning of 2016. We have also seen some catalysts to support this move lower – both economic and overseas. However, we have yet to see a bounce in these markets. Until we see the bulls step in, we can’t be sure if this is just corrective action or the beginning of something more. The next bull move should shed some light on where these markets could go next, depending on the strength of the rally.

Finding longer-term directional trades can prove difficult here. With the markets finding a temporary bottom, we don’t have much time for sideways either. This leaves us with very little opportunity in the short-term. For those of you who have bear trades on, especially as support was broken, continue to allow them to work for you and follow your plan. Pullbacks and rallies will happen, but they will also create new opportunities to trade. Stay patient and let’s see where the next move goes.

Thursday, January 7, 2016

Continued weakness out of China and the expectations of weak earnings reports this quarter sent the majors lower for a second straight day. Today’s losses did exceed yesterday’s losses, as all three majors pushed well below support levels on a decent spike in volatility.

We were expecting the markets to move lower this week; however, volatility was much larger than originally anticipated. The markets could look to make a temporary bottom over the next few sessions. With the increase in volatility, we just need to see a spike in volume correlated with a move lower, or capitulation. Today’s action did show signs of capitulation, but we will need to see a strong bounce to confirm.

There have been some decent bear plays out there and, even after a bounce, we could see more. Try not to chase any bear trades here as there will be better opportunities after the markets correct or bounce.

Wednesday, January 6, 2016

From Our September 2015 E-mail Archives: Our Head Trader, Robb, replied to an e-mail from one of Maverick's traders who had a question about trade triggers and another question about choosing strike prices for vertical spreads.*

-----Original Message-----

From: Thomas G.Subject: Trades

Robb,

I have two quick questions today.

Trade Triggers – When you are entering a trade, if you get a higher high, but its a doji candle on the day, do you consider this a trigger to enter a new trade or not? I'm sure the answer is the same as you have told me before, that it evens out in the end if I do it 1,000 times.

In Sunday's Trading Room, you gave an example of Sempra Energy (SRE) 100/97.5 Bear Call. The stock is low basing and you get around 1:1 Reward-to-Risk Ratio with a high probability. My question is, "Why 100/97.5? Why not 100/95 or 97.5/95?" I know that it was just for an example and you would put it through your personal trading plan before actually making the trade. However, I'd like to know, when you see a low base on a chart, do you go slightly in-the-money (ITM) as a rule.

Hope you have a great week and thank you again for your time.

Thomas

-----Reply Message-----

Hi Thomas,

Let me get to your questions.

Trade Triggers – First of all, you are right in the fact that there is not likely to be much statistical difference between entering or not entering over the long run (say, 1,000 trades). You really need to decide which method feels most comfortable to you; that is, the entry rule that you are most likely to follow religiously.

Personally, I like to get into trades a bit earlier than most people, but I have to recognize that sometimes I will get “head-faked” and would have been better off had I waited for more confirmation. On the other hand, one of our traders, Joe Jensen, always waits for confirmation. By default, Joe has a higher Win/Loss % than me, but he also has a lower R/R ratio. In the end, both of our strategies work for us and will work better in some market environments and worse in others.

Whenever you are looking at a vertical spread (any of the four vertical strategies…actually, any option strategy), there is a teeter-totter of Win/Loss % and R/R Ratio. I’m sure you’ve heard me reference it in many of the training sessions. If you want a higher statistical Win/Loss %, then you must accept a lower R/R and vice versa. Options pricing models are 100% statistical in nature and there is no way to get both a high Win/Loss % coupled with a high R/R ratio. That’s why we use market and stock volatility to tell us which strikes to use.

For example, over the February to August 2015 period, we kept saying in the Sunday Trading Room sessions that “you can’t ask too much of the underlying stock in this low volatility environment.” So, we used tight spreads and option strikes that were closer to at-the-money (ATM) since the odds of having a substantial move weren’t that great. In a high volatility environment, you actually want to be more aggressive on vertical spreads since the odds of closing at a max gain or loss are much higher.

If there was a stock at $100 in a low volatility environment (or I was looking for a lower volatility trade) and I was bearish, then I would go with the 100/97.50 Bear Call Spread since my underlying won’t need to move as much. This trade would have a higher W/L% than other trades, but would also carry a lower R/R.

In contrast, for the same $100 stock in a high volatility environment, I would go with the 100/95 or 97.50/95 Bear Call Spread since the odds of a big move would be much higher. I would have higher R/R on these spreads than the 100/97.50. Remember, rising or high volatility simply means that a spread has a greater chance to achieve max gain or loss. It’s up to you to analyze the market, sector and stock to make sure that you are on the right side of the trade.

Tuesday, January 5, 2016

The markets continued lower from last week’s move, confirming a bear rally. Today, we saw the market hesitate on support – as discussed in Sunday’s live, weekly Trading Room, we will need to see if support will hold. We should see volume continue to pick up over the next few days and could see opportunity in either direction this week.

Technically, we could go either way from here. The good news is that we can enter trades regardless of direction. If we can move above today’s high, then look to add some slightly bullish to sideways positions. This could be the beginning of a decent bull move. On the other side of things, we could break below support, creating a nice bearish opportunity. With a break down, we could see some short-term aggressive movement, where straight puts and short-term bearish spreads could prove profitable.

Once the markets break out of this range in either direction, we should expect a correction or consolidation. If you are looking to play things longer into February or March, then take this into consideration. Take your time in building your portfolios, stay patient and don’t force trades – the good ones should develop nicely over the next few days.